Trading News: Is It Worth It?

Trading News: Is It Worth It?
Every morning just before the opening bell ring, every
trader gets their buy or sell button ready to make that
first pretty penny before someone else gets there. The day
is especially important because good economic news had just
been released so everyone is anticipating a big profit day.
This is a typical scenario in a day where either corporate
or economic news comes out. Volume rush higher and higher
to catch up with the news development. But is it worth
(read profitable) for traders?

There are many books, trading rooms and advisory services
teaching traders on how to trade the news but the truth is
the vast majority of people lose when they trade news,
particularly against the market makers, specialists and
other traders who have been around longer than they have.
Is it because of faulty technique? Is it the fundamental
news, analysts getting their numbers wrong? Or it's the
traders themselves that are causing these losses?

One thing that has to be noted is that during the news
announcements, there are lots of excitement, anticipation
and anxiety. So this atmosphere creates an emotional factor
to trading. For those cannot control themselves, they let
their emotions take over. These can be harmful to their
money without realizing what's really happening. Others
come in without any hard concrete tactics or safety nets
(i.e. stop losses). While there are other who come in with
a gambling mentality for next adrenalin rush.

Trading news has a 50% chance of winning, leaving the
probability of a successful outcome is unlikely. But also
the fact that with so much volatility, there isn't really a
sense of clear momentum swinging one way or the other.

Most don't understand the mechanics or psychology at work
in the markets. When the good news is made, the stock goes
down. When it's bad, the stock moves up. Taking the news at
face value is obviously a losing proposition. No one knows
when the price of stock has already absorbed the news and
was now being unloaded by the pros. Even the positive
surprise or negative surprise can be a real surprise when
30 minutes after opening, the stock starts going the other
direction. Also, no one can be sure if the news has been
leaked to cause the prices to do the unexpected and the
insiders are now going the opposite direction.

If anyone who has traded currencies, trading news can be a
handicap, especially with a broker who lock up their
clients' orders during news break. This is common practice
(please reread the disclaimer as well as the agreement
document form when signing up a real account. It will be
very enlightening).

There are professionals who do well because they have
clearly defined their plan, such as when to get in, when to
get out, and when not to get in and when not to get out.
They may have taken years to finally master these types of
setups in this hectic market action.

Not surprisingly, news carries different meanings to
different traders. The numbers in the end don't really mean
much because consensus is made of a group of high-profile
analysts but they don't necessary represent the opinions of
thousands of traders and institutions who put their money
on the line. They vote with their money to give their
opinion of what the piece of news meant to them. Some find
it's a bargain and buy more, while others find it's too
expensive so they sell. How does anyone know what
?expensive' or ?cheap' is?

Whether or not trading news is profitable, only time will
tell for each trader, but one clear advice from this is NOT
to hold a stock before earnings. By holding through the
earnings, it's a guessing game. If he still likes the
stock, by it back a few days after the earnings. Who knows
it might have been oversold and now it's a "bargain." Of
course there will be regrets if the stock does move in the
desired direction. It's down to 50% chance: way or the
other. But who want to gamble their hard earned money away
so easily after sweating so much to get it?

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Larry Swing
CEO & Head Swing Trader
http://www.mrswing.com
theboss@mrswing.com
+1 (281) 968-2718
Yahoo & Skype ID: larry_swing